In the ever-evolving landscape of the legal industry, law firm mergers have become a prevalent phenomenon. These mergers, often driven by strategic considerations and market forces, can have profound effects on the business of law. From reshaping the competitive landscape to changing the way legal services are delivered and consumed, law firm mergers have ripple effects that touch every corner of the legal profession.
Law firm mergers are up year-to-date in 2023 compared with 2022, according to data compiled by Fairfax Associates. More law firm mergers were completed in the first half of 2023 than in the same period in 2022 or 2021. The largest completed merger in the second quarter was the formation of Maynard Nexsen from two southern firms—Birmingham-based Maynard Cooper & Gale (286 lawyers) and Columbia, South Carolina–based Nexsen Pruet (175 lawyers). “Merger activity is increasing out of the pandemic, though it’s been a bit slower than we thought we’d see given the high level of interest and active discussions we’ve seen around mergers,” observed Fairfax Associates’ principal, Kristin Stark, Irvine, CA, in The American Lawyer.
According to Fairfax Associates, law firms completed 11 mergers in the third quarter for a total of 41 in the first nine months of 2023. Activity is being driven by firms looking to develop a coast-to-coast presence, with California serving as a particularly hot expansion target. “California remains a growth focus…. It has very mature markets. While it has a lot of growth potential, it also has a lot of small firms that are combining because they’re facing succession issues,” noted Stark. Philadelphia-based Saul Ewing (351 lawyers) combined with Freeman Freeman & Smiley (50 lawyers) in Los Angeles and Orange County, as their first foray into California in the largest merger of the quarter.
The substantial forthcoming merger between Allen & Overy and Shearman & Sterling announced in the second quarter cannot be ignored. It will result in firm of almost 4,000 attorneys, and the merger is expected to close in May 2024. Allen & Overy and Shearman, through their merger, would surpass the $3 billion threshold if both firms together collect the same amount of revenue they brought in separately during 2022, based on The American Lawyer data.
Mergers have multifaceted impacts on law firms and how they reshape the business of law. One of the most noticeable effects of law firm mergers is the consolidation of legal service providers. As law firms combine their resources, expertise, and client bases, they create larger, more formidable entities that can compete more effectively in today’s globalized legal marketplace. This consolidation is driven by a desire to gain a competitive advantage, both in terms of market share and specialization.
The legal needs of clients often span multiple jurisdictions. A client with business operations in various states or countries requires legal advice and representation that can navigate complex regulatory environments. Law firm mergers provide a pathway to geographic expansion, allowing firms to serve clients in different regions more effectively. Merged firms can leverage their expanded presence to offer more localized and specialized expertise, ensuring that they can meet the diverse legal needs of their clients. Consequently, clients benefit from having a single source of legal expertise that can address their concerns across multiple jurisdictions.
Law firm mergers can lead to the realization of economies of scale, resulting in cost savings and improved efficiency. The merged firm can streamline administrative functions, consolidate support staff, and reduce overhead costs. Such cost efficiencies contribute to increased profitability, a key goal for law firms in today’s competitive environment. Overall, the pursuit of cost savings through economies of scale is a central driver behind many law firm mergers.
Mergers can also be instrumental in strengthening client relationships. As clients benefit from a broader array of legal services and expertise within the merged firm, they often find it more convenient to rely on a single legal provider. This closer relationship can lead to increased client loyalty and a deeper understanding of the client’s business, enabling the law firm to deliver more personalized and effective legal solutions.
Lastly, law firms often merge with the aim of retaining and attracting top legal talent. The merged entity can offer greater career development opportunities, a broader platform for professional growth, and access to more extensive resources and expertise. This can make the merged firm an attractive destination for both experienced lawyers and talented law school graduates.
While law firm mergers offer numerous benefits, they are not without risks and challenges, including the following:
Culture Clash: Merged firms often face the challenge of integrating two distinct organizational cultures. These cultural differences can impact the day-to-day operations of the firm and affect employee morale.
Integration of Systems and Processes: Merging law firms frequently operate with different systems and processes, which can be challenging to integrate. This can lead to inefficiencies and disruptions in service delivery if not managed carefully.
Personnel Challenges: Key personnel, including partners and associates, may not agree with the merger’s direction. This can lead to talent attrition and destabilize the newly formed firm.
Client Transition: Clients may be concerned about the merger’s impact on the quality and cost of services. It is the merged firm’s responsibility to manage these expectations and ensure a smooth transition for clients.
Navigating these challenges requires careful planning and effective execution of the merger strategy. Firms must take steps to ensure that the merged entity operates harmoniously, with a shared culture and streamlined processes. “A lot found out that it’s not so easy, and it costs a lot of money,” stated Jeffrey Lowe, founding partner of JLP, New York, NY, in Bloomberg. “You have to be careful because you have not only the business side to assimilate, but the cultures as well,” he explained. “Big Law is replete with a number of examples where it went well, but probably three to four times as many examples where it didn’t go so great.”
As noted by Greenberg Traurig’s executive chair, Richard Rosenbaum, New York, NY, in his recent Bloomberg article, “[t]he legal profession is facing changes so completely out of our control that the future track is up in the air from how we continue to attract law students … to reiterating the value of in-person collaboration for experienced lawyers and … this all needs to happen without losing your culture or financial footing[.] Oh yes, and then there are mergers, that, for the most part, threaten your culture and business more profoundly and quickly than any AI program now available.”
Not everybody shares the same level of concern. “There’s a fear of being left behind,” offers Lowe. “People see their competitors taking action, and they may ask themselves, ‘Why aren’t we doing that?’” And while mergers are clearly not for everyone, “[i]t’s becoming increasingly apparent that without a merger, you can’t catch the biggest firms,” admitted Peter Zeughauser, chair of the Zeughauser Group, Newport Beach, CA, in Bloomberg. “Firms are realizing the benefit of the scale and the impact of compounding gross revenue and profits per equity partners on the ability to attract and retain clients.” And for many, this is a good thing.
